* We examine how MNCs balance standardization and adaptation in
their international product designs. Specifically, we investigate how
inputs from both a firm's headquarters and its foreign
subsidiaries, together, shape the standardization-adaptation balance for
the product's superior market performance.

* This paper provides evidence of how joint inputs of headquarters
and subsidiaries make the standardization adaptation balance effective
in international products.

Introduction

When introducing products in international markets, weighing the
benefits of standardizing products across country markets versus
adapting them to the differences among markets is often a significant
concern to multinational companies (MNCs). Researchers have long debated
the standardization-adaptation quandary (see Cavusgil/Zou/Naidu 1993,
for a review). One side of this debate contends that standardizing
products across country markets is not only desirable because of
efficiency considerations, but also feasible because of the growing
homogenization of country markets (Hout/Porter/Rudden 1982, Levitt 1983,
Ohmae 1985). The other side in this debate, skeptical about both the
benefits and the feasibility of standardization, cites the many
intractable cultural, political, and economic differences among
countries, and makes a strong case for adapting these products to local
market requirements (Boddewyn/Soehl/Picard 1986, Quelch/Hoff 1986).

Since the late 1980s however, both standardization and adaptation
are believed to be equally important, and companies have been encouraged
to balance these conflicting requirements in their international product
designs (Cavusgil et al. 1993, Wind/Douglas 1987). While all
international products are not designed with this objective, the
proportion of international products that balance standardization and
adaptation appears to be growing (Takeuchi/Porter 1986) and anecdotes
justifying the merits of balancing standardization and adaptation come
from a spectrum of industries. These include food and cosmetics (where
adaptation would appear to be important) along with copiers and
televisions (where standardization would appear to be critical) (e.g.,
Bartlett/Ghoshal 1989, Takeuchi/Porter 1986,
Subramaniam/Rosenthal/Hatten 1998). The logic being that, by balancing
standardization and adaptation, MNCs can not only simultaneously harness
the benefits of efficiency and responsiveness (Prahalad/Doz 1987,
Morrison/Roth 1992), but also coalesce into their products, inputs of
both headquarters and foreign subsidiaries for greater competitive
advantage (Subramaniam/ Venkatraman 2001).

Our understanding, however, of how MNCs effectively balance
standardization with adaptation in their product designs remains
limited, despite the notable research attention the
standardization/adaptation debate has attracted. Partly, this is because
this debate has disproportionately channeled research to either
establish the prevalence or dearth of standardization across markets
(e.g., Boddewyn et al. 1986, Samiee/Roth 1992), or to delineate the
contingencies influencing the likelihood of standardization or
adaptation (e.g., Cavusgil et al. 1993, Jain 1989). Consequently, while
this research gives us a good understanding of the conditions under
which MNCs are more likely to either standardize or adapt their
products, it provides few insights on how MNCs balance standardization
with adaptation. This gap in our understanding is of concern, given the
current thinking that standardization and adaptation are not necessarily
either/or choices solely governed by product, market or technology
contingencies. Indeed, there is a clear need to systematically assess
how MNCs can balance standardization with adaptation for higher product
performance despite industry related contingencies across product
markets (Bartlett/Ghoshal 1989).

Furthermore, most studies have examined standardization and
adaptation at the aggregate level of the marketing mix (Jain 1989,
Szymanski/Bharadwaj/ Varadarajan 1993). Few have specifically focused on
the product and its design--mingling the international product with its
promotion, pricing and distribution in their analysis. Hence, the
question of how some MNCs more effectively balance standardization with
adaptation in their international product designs remains largely
unexamined. This gap is particularly disconcerting, given the increasing
competitive significance of product designs for MNCs in their tussle for
market share in closely contested international markets (Nonaka/Takeuchi
1995).

In this study we direct attention to how MNCs balance
standardization with adaptation in their international product designs
and investigate its influence on the product's competitiveness in
international markets. We focus on how headquarters and subsidiary
inputs jointly shape the standardization-adaptation balance and examine
how a MNC's knowledge and experience base, distributed amid its
headquarters and subsidiaries, are brought to bear in designing the
standardization-adaptation balance. More specifically, we concentrate on
the role of direct face-to face contact between, and cooperation among,
headquarters and subsidiary managers in influencing the effectiveness by
which MNCs balance standardization-adaptation in their international
products. We determine the effectiveness of how MNCs balance
standardization-adaptation based on product performance in international
markets.

Background

A MNC's ability to generate and deploy superior knowledge
across country markets has long been recognized as a key element of its
competitiveness. Early thinking however put much of the onus for
knowledge generation and its deployment on the MNCs' headquarters
(e.g., Caves 1971, Vernon 1966). According to this traditional view,
subsidiaries were stylized as passive recipients of the MNC's home
country or "ownership" advantages (Dunning 1988). In fact, the
efficient deployment of their home country knowledge through the
"internalization" of intangible assets, was professed as the
principal logic for the very existence of MNCs (Buckley/Casson 1976,
Hymer 1960, Teece 1981).

More modern thinking however views the knowledge generating
potential of MNCs to span country borders. According to this
perspective, subsidiaries are not just passive recipients of home
country knowledge, but active participants in the process of creating a
global repository of new knowledge (Birkinshaw/Hood 2001, Furu 2000,
Frost 2001). As a result, the principal source of competitive advantage
of MNCs is now reckoned to be their ability to generate new knowledge
through the stimuli and resources of diverse heterogeneous environments
(Cantwell 1992, Subramaniam/Venkatraman 2001).

Our inquiry into how MNCs balance standardization with adaptation
of international products is based on this new line of thinking. That
is, we see an international product as a platform for headquarters and
subsidiaries to jointly generate new knowledge (Lindqvist/Solvell/Zander
2000). We also see the standardization-adaptation balance in this
product as an expression of the sharing and assimilation of
headquarters-subsidiary inputs.

Research Framework

A basic premise of our study thus is that the effectiveness by
which MNCs balance standardization and adaptation is a function of how
inputs from both headquarters and subsidiaries are leveraged for
designing the balance. Inputs from headquarters are critical as
headquarters managers invariably are in a central position to synthesize inputs from their global network and the most likely sources of
knowledge about what features could be standardized in the product
design. Similarly, inputs of the concerned overseas subsidiaries are
also critical, as subsidiary managers are generally well positioned to
absorb and possess knowledge about local market conditions
(Birkinshaw/Hood/Jonsson 1998, O'Donnell 2000). Bartlett and
Ghoshal (1989) describe the process of balancing
standardization-adaptation as "transnational"--its
effectiveness depending on the extent to which unique and differentiated
strands of expertise accumulated by both headquarters and subsidiaries
get assimilated into the MNCs' products.

This premise consequently leads us to examine two aspects of how
MNCs balance standardization with adaptation. The first concerns a
physical manifestation of a balance--that is, the extent to which
product features reflect both adaptations to unique country requirements
and standardization across markets. The second concerns the degree of
inputs from both headquarters and subsidiaries in arriving at product
features manifesting the balance. We focus on these two aspects as we
believe that predicting the effectiveness of standardization adaptation
balances in international products, necessitates considering both the
physical manifestation of a balance in the product design and how
headquarters and subsidiary inputs get assimilated into the balance. Our
assertion is that while the physical manifestation of product features
reflecting a balance in standardization-adaptation balance is required
(2) for estimating the effectiveness of international products, it is
not a sufficient condition. This is because the physical manifestation
of a balance per se does not reflect the extent of
headquarters-subsidiary inputs that go into its creation.

Take for example three international products, A, B, and C, each
physically manifesting a similar balance between standardization and
adaptation. That is, for each product, there are a comparable number of
design features representing both standardization and adaptation.
However, product A is designed with very little inputs from
subsidiaries, with headquarters managers making their own inferences
about overseas market requirements and the product's features that
adapt to them. Product B is designed with little inputs from
headquarters, with the subsidiary making their own assumptions about the
features that headquarters may want to standardize across markets. In
contrast, the combined inputs of headquarters and subsidiary managers
create product C's design features; their cumulative insights
shaping the standardization-adaptation balance.

We contend that, despite products A, B and C physically manifesting
comparable standardization adaptation balances, product C is more likely
to outperform products A and B when introduced in the concerned
international market. This is because product C better
"embodies" the distinctive expertise of both headquarters and
the concerned subsidiary (Madhavan/Grover 1998). Its development more
closely epitomizes a "transnational" process, with the
benefits of efficiency (through standardization) and responsiveness
(through adaptation) being harnessed by coalescing the unique and
essential know-how of headquarters and subsidiaries respectively
(Bartlett/Ghoshal 1989). Products A and B, in comparison, do not deploy
the distinctive expertise of headquarters and subsidiaries to the same
extent and hence will not as effectively leverage the benefits of
efficiency and responsiveness, and consequently not be as competitive in
the international market. To capture the impact of this important driver
of effectiveness in our analysis thus, it is necessary to not only the
physical manifestation of the standardization-adaptation balance, but
also factor in the extent to which headquarters-subsidiary inputs are
shared and assimilated to shape that balance.

Hypotheses

One approach for headquarters and subsidiaries to share their
respective inputs when balancing standardization and adaptation in their
product design is through direct face-to-face contact among their
managers (Egelhoff 1991, Ghoshal/Korine/Szulanski 1994,
Gupta/Govindarajan 2000). Direct face-to-face contact, which we see as a
consequence of subsidiary managers' visits to headquarters,
enriches the media for knowledge exchange, making it possible for
headquarters and subsidiary managers to discuss, intricate nuances of
their unique perspectives for product designs (Daft/Lengel 1986,
Subramaniam et al. 1998, Nonaka/ Takeuchi 1995). Direct face-to-face
contact also socializes these managers, providing them with a strong
platform to share their knowledge and to leverage a broader base of
perspectives and a wider set of alternatives when balancing
standardization and adaptation in their product designs (Nonaka 1994,
Takeuchi/ Porter 1986). According to Grant (1996), such knowledge
exchange enhances the scope and flexibility of knowledge
integration--or, the breadth and depth of knowledge that organizations
can access for assimilating multiple inputs and sources of knowledge.

A standardization-adaptation balance in an international product
developed through high direct face-to-face contact among headquarters
and subsidiary managers is thus more likely to have assimilated rich
insights and inputs from both headquarters and subsidiaries
(Madhavan/Grover 1998, Subramaniam et al., 1998). On the other hand, a
standardization-adaptation balance developed with little direct
face-to-face contact between headquarters and subsidiary managers is
unlikely to have factored in inputs from both headquarters and
subsidiaries in any meaningful way. We expect thus that, when the
physical manifestation of the standardization-adaptation balance in the
product design and the level of headquarters-subsidiary direct
face-to-face contact are both high, product performance in the
individual international markets will be enhanced. Hence:

Hypothesis 1 (H1). The joint effects of the physical manifestation
of a balance between standardization-adaptation in the product design
and headquarters-subsidiary manager direct face-to-face contact will
positively influence product performance in international markets.

A different level of analysis for assessing the cross-border
sharing of inputs concerns the context in which the face-to-face contact
between headquarters and subsidiary managers occurs to share and
assimilate each other's knowledge. A context of high
cooperation--reflected in the openness of communication, similarity in
goals, and a culture of give and take among headquarters and subsidiary
managers--influences the motivation among subsidiary and headquarters
managers to share their knowledge and further facilitate their knowledge
exchange (Hoopes/Postrel 1999, Nonaka 1994, Bartmess/Cerny 1993). Such a
context, allowing for an open sharing of knowledge assumes importance,
as headquarters and subsidiaries often have major differences in their
cultures, objectives, and decision-making premises (Perlmutter 1969,
Roth/Nigh 1992).

The process of balancing standardization and adaptation is a
particularly thorny issue for headquarters and subsidiary managers, and
is known to accentuate their divergence in objectives (Bartlett/Ghoshal
1989). While headquarters managers generally press for standardization
to enhance their company's overall global position, subsidiary
managers typically look for unique and adaptive product features to
benefit their local market position. (3) In such a setting, embarking
upon the standardization-adaptation balance problem to achieve a
"win-win" solution enhances the effectiveness of the process.

Co-operation among headquarters and subsidiary managers facilitates
the likelihood of achieving "win-win" scenario. That is, when
headquarters-subsidiary manager contact for designing the
standardization-adaptation balance occurs in a context of high
cooperation, we can expect a more open and forthcoming sharing of their
corresponding inputs. We can also expect these managers to more
willingly perceive complementary needs and constraints, and arrive at a
blend of design features that leverages a broader set of views, ideas
and creative solutions (Nonaka/Takeuchi 1995). This should strengthen
the degree of cross-border knowledge assimilation they harness in the
standardization-adaptation balance and consequently the product
performance they achieve. Conversely, when headquarters-subsidiary
manager contact occurs in a context of low cooperation, we do not expect
managers to be entirely forthcoming in sharing their knowledge or be
accommodating in accepting inputs and suggestions. In such a context
these managers are unlikely to fully leverage their ideas, thoughts and
views about likely feature options in their product design. A context of
low cooperation thus weakens the degree of cross-border knowledge
assimilation they harness in the standardization-adaptation balance, and
consequently impairs the product performance they achieve. Hence:

Hypothesis 2 (142). The influence of the joint effects of the
physical manifestation of a balance between of standardization-
adaptation in the product design and headquarters-subsidiary manager
direct face-to-face contact on product performance will be stronger when
headquarters-subsidiary cooperation is high and weaker when
headquarter-subsidiary cooperation is low.

Figure 1 schematically represents our research framework.

[FIGURE 1 OMITTED]

Research Methods

We used a cross-sectional survey of key informants to collect
primary data from a set of foreign subsidiaries of US-based MNCs for our
research. The survey was administered to subsidiary managers
knowledgeable of the implementation of product marketing practices and
responsible for the introduction of products in their respective
markets. We asked these informants to focus on one specific product and
its corresponding geographic market (our unit of analysis) when
responding to our survey.

Sampling and Survey Procedure

To select a sample of key informants, we first identified
hierarchies of US-based firms using the International Directory of
Corporate Affiliations (1997), and then selected firms with foreign
subsidiaries to contact. Second, we placed telephone calls to each US
corporate headquarters so as to identify marketing managers in foreign
subsidiaries and assess their ability to serve as key informants. Our
final target sample of contained three hundred and sixty-six key
informants in three hundred and fifty-three foreign subsidiaries of one
hundred and twenty-three US-based firms. In thirteen cases, two
informants (with responsibilities for different products) were
identified at the same subsidiary.

We sent a questionnaire, cover letter, and a reply envelope to each
of the identified key informants in these subsidiaries. Based on Dillman
(1978), we sent follow-up reminder post cards to non-respondents after
three weeks. This was followed by two additional sets of follow-up
questionnaires after six weeks and ten weeks respectively. As an
incentive for their participation, we offered respondents a summary
report of the findings from the completed study. Out of 366 potential
subsidiary manager responses we received 128, for a response rate of 36
percent. Each one of these responses represented a distinct product.
These responses came from 108 foreign subsidiaries in 35 countries,
representing 62 MNCs.

Non-response Bias Check

We tested for non-response bias in our data using procedures
recommended by Armstrong and Overton (1977). A comparison of the mean
values of all the variables in the responses from the first, second and
the third mailings showed no significant differences (p-values ranged
from 0.20 to 0.87). Additionally, comparisons of secondary data on
subsidiary characteristics (number of employees, subsidiary sales) for
responding and non-responding firms obtained from America's
Corporate Families and International Affiliates (1998) also revealed no
significant differences (p [less than or equal to] 0.77 and p [less than
or equal] 0.43 for employees and sales respectively).

Inter-Rater Agreement

We also tested for inter-rater agreement by calculating a Pearson
product moment correlation across questionnaire items that were not
brand-specific for each pair of respondents from the same subsidiary.
The average correlation across all pairs of respondents was 0.92, with
correlations ranging from 0.64 to 0.99. This high level of inter-rater
agreement provides some support for the assumption that the responses of
the key informant are representative of subsidiary information.

Measures

Wherever possible we adapted pre-existing measures to the context
of this study; in other cases we developed new measures. All measures
were pre-tested for content validity with academic experts and marketing
managers by sending draft questionnaires and then debriefing participants via telephone after we received their comments (see
Appendix 1 for a listing of all the measures).

The measure for the dependent variable, namely, product performance
in its respective international market, was operationalized as the
reported market share of the product over the most recent annual period.
Market share has been used consistently in research assessing product
and brand-level performance (Roth 1995, Szymanski et al. 1993).

Our conceptualization of direct face-to-face contact between
headquarters and subsidiary managers is rooted in the notion that such
contact enhances the richness of communication (Daft/Lengel 1985,
Subramaniam et al. 1998). Moreover, this richness of communication is
enhanced when the direct contact is over long periods of time (Nonaka
1994). Accordingly, we operationalized this variable as the number of
days, on average, marketing managers from each subsidiary spent at the
firm's headquarters per year. This operationalization is consistent
with that discussed by O'Donnell (2000). We conceptualized
headquarters-subsidiary cooperation as a facilitator of open
communication and sharing of cross-border inputs. Accordingly, we used a
scale adapted from Song, Montoya-Weiss, and Schmidt (1997) asking
respondents to rate their subsidiary's product management
activities in terms of their openness of communications, the similarity
in goals, satisfaction in interactions, and give and take they had with
headquarters.

We operationalized the physical manifestation of a balance between
standardization and adaptation by developing a new measure. The idea was
to get an indication of the physical manifestation of a
standardization-adaptation balance in terms of product features being
both adapted and standardized. We accordingly asked respondents to
indicate on a five-point scale the extent to which the product design
was customized by the particular subsidiary's marketing operation
versus being standardized by the firm's headquarters. We re-coded
these responses as follows: completely standardized (previous rating of
1) = 1; completely customized (previous rating of 5) = 1; 75%
standardized/25% customized (previous rating of 2) = 2; 75%
customized/25% standardized (previous rating of 4) = 2; and 50%
standardized/50% customized (previous rating of 3) = 3. The highest
response of this re-coded measure thus was when the design had the
highest balance between standardization and adaptation; the lowest
response was when the product design had the least balance (either
complete standardization or complete adaptation).

Control Variables

We used several control variables in our empirical models. Three of
these were chosen to control for the influence of the characteristics of
the subsidiary and its market on product success. These include:
subsidiary size, operationalized as the total number of employees
(Quester/Conduit 1996); technological turbulence in the subsidiary
market, measured by a scale rating the technology behind the products on
frequency of change, difficulty in forecasting, and the number
breakthroughs (Menon/Jaworski/Kohli 1997); competitive intensity in the
subsidiary market, assessed by a scale rating the competition in terms
of being cutthroat, price competitive, ready to match competitive offers
and ease of awareness of new competitive moves (Szymanski et al. 1993).
The next three variables were chosen to control for contingent factors
that influence the likelihood of the product being adaptive or
standardized. One, the economic distance of the subsidiary market, was
calculated from gross domestic product (GDP) per capita data (Terpstra
1988); the logic being that greater economic distance is more likely to
influence adaptation, whereas lesser economic distance is more likely to
influence standardization (Jain 1989). The second, the nature of the
product--whether a durable, non-durable or a service--was controlled for
following Subramaniam and Venkatraman (2001) with two dummy variables.
Again the logic we employ suggests that differences among these product
characteristics are likely to influence standardization and adaptation
(Cavusgil et al. 1993). Note that our sample contains 56 firms in the
durables group (e.g., automobiles, elevators, tractors), 79 firms in the
nondurables group (e.g., beverages, cosmetics, pet food), and 8 firms in
the services group (e.g., telecommunications and software development).
The third, the interdependence of the subsidiary with all other
sub-units of the MNC, assessed using a scale with eight indicators
rating interdependence across several facets (Astley/Zajac 1990). For
example the scale rated how much the subsidiary influenced the outcomes
of other subsidiaries, how much it relied on other subsidiaries for is
functioning, how coordinated its work was with other subsidiaries, and
the extent to which tasks in the subsidiary were jointly managed with
other subsidiaries. These aspects of interdependence are known to have
an influence on standardization/adaptation (Bartlett/Ghoshal 1989), and
hence used as control variable. Finally, we used key informant
subsidiary experience, operationalized as the number of years (4) the
respondent has been in the subsidiary (Cavusgil et al. 1993) to control
for any possible influence of informant experience on the responses to
our survey.

Tests for Reliability and Validity of Measures

To assess the content validity of our measurement scales, we
conducted a smaller-scale study following procedures similar to those
recommended by Zaichkowsky (1985) and Netemeyer, Boles, and MacMurrian
(1996). Using this procedure, we identified expert judges with
experience doing key informant research and asked them to rate the
degree to which each item represented the constructs in our study. These
expert judges rated each item as "clearly representative,"
"somewhat representative," or "not representative"
of the construct of interest. Across all items, mean responses were
greater than 2.0 (i.e., somewhat representative), and in all cases at
least 82 percent of judges indicated their perception that the item was
at least somewhat representative. Given that Zaichkowsky (1985) suggests
that an 80 percent level of agreement is sufficient in determining item
representativeness, our measures have good content validity.

Reliability and discriminant validity were assessed for all scaled
multiple-item measures (i.e., headquarters-subsidiary cooperation,
technological turbulence, competitive intensity and horizontal
interdependence) using procedures recommended by Anderson (1987). As
depicted in Appendix 1, with one exception (the control variable
competitive intensity (5)), Cronbach's Alpha for all final scales
exceeded 0.70, providing evidence of reliability (Peter 1979).
Additionally, composite reliability scores based on the item-loadings
from confirmatory factor models ranged from 0.68 to 0.87 (for these same
variables). Discriminant validity was assessed using the procedure
recommended by Gerbing and Anderson (1988). Confirmatory factor models
with two factors involving each possible pair of constructs were run. In
the first model, the do coefficient was constrained to 1.0, and then was
estimated freely in the second model. In each case, the model with the
free [phi] coefficient was found to be superior to the model with the
fixed [phi] coefficient using a chi-square difference test. The results
of these analyses are summarized in Table 1.

Analyses and Results

Table 2 provides the summary statistics and correlations for all
the variables included in the study. We used regression analysis to
assess support for the hypotheses. We also computed the variance
inflation factors (VIFs) for all the variables. The largest of the
resulting VIFs was 2.70, well below 10--the level suggested by Mason and
Perreault (1991) to signal detrimental multicollinearity. Table 3 shows
the results of the regression models along with the standardized
parameter ([beta]) estimates as well as their p-values in parentheses.
Model 1 in Table 3 shows the effects of the control variables. Together
they explain a significant variance (p < 0.01) in product performance
and hence contribute in controlling for effects other than our
hypothesized independent variables. It is interesting to note that the
control variable competitive intensity remains highly significant (p
< 0.001) across the regression Models 1-5 indicating its relative
importance compared to the other variables in controlling for
"other effects" while explaining the variance in the dependent
variable.

Tests of Hypotheses

Hypothesis 1 predicts that the joint effects of the physical
manifestation of a balance in standardization and adaptation and
headquarters-subsidiary direct face-to-face contact and will be
positively associated with the product performance in the
subsidiary's market. As shown in Table 3, the coefficient for the
joint effects in Model 3 is significant ([beta] = 0.476; p < 0.05).
These results support Hypothesis 1.

Hypothesis 2 predicts that at high levels of cooperation, the
influence of the joint effects of the physical manifestation of a
balance in standardization-adaptation and headquarters-subsidiary direct
face-to-face contact on product performance will be stronger than at low
levels of cooperation. To test this prediction we used sub-group
analysis (6) and divided our sample based on the mid-point of the
seven-point scale for the headquarters-subsidiary cooperation measure,
or at four. We then compared the relative influence of the joint effects
of headquarters-subsidiary direct contact and balance in
standardization-adaptation on product performance in each of these
sub-samples--of high and low headquarters-subsidiary cooperation
respectively. (7) According to Chow (1960), this approach of using a
sub-group analysis can be used to assess equivalence of regression
coefficients between two samples. More specifically, the Chow Test can
be used to assess whether or not two sets of data (e.g., from two
samples) contain significantly different regression coefficients
(Gujarati 1995, Studenmund 1997).

Model 4 in Table 3, lists the standardized regression coefficients
and p-values for the low headquarters-subsidiary cooperation group, and
Model 5 lists them for the high headquarters-subsidiary cooperation
group. The coefficient of the joint effects of headquarters-subsidiary
direct contact and standardization-adaptation balance on product
performance is stronger in the high cooperation group ([beta] = 0.548; p
< 0.07) as compared to the low cooperation group ([beta] = 0.209; p
< 0.689). Additional support for the differences in the low and high
cooperation groups is provided by the Chow test comparing the regression
coefficients for the two groups, which resulted in an F-statistic of
1.82 (d.f. = 13, 113) (p < 0.05). While this test represents a
comparison of all coefficients in the models, a comparison of the
coefficients for the joint effects of headquarters-subsidiary direct
contact and standardization-adaptation balance on product performance
reveals a non-significant relationship for the low cooperation group,
and a relationship that is significant at p < 0.07 for the high
cooperation group. Taken as a whole, these results provide support for
Hypothesis 2. In summary thus, we find both our hypotheses supported by
our results.

Additional Analyses and Results

To further ascertain the validity of our regression results we
reanalyzed our data using ANOVA. We created a grid wherein our responses
fell into one of four categories--high/high, low/low, high/low and
low/high--of standardization-adaptation balance and
headquarters-subsidiary contact respectively. We transformed our measure
of headquarters-subsidiary contact using a median split of our data with
observations above the median representing "high" values and
observations below the median representing "low" values. We
ran an analysis of variance with our control variables as covariates,
the new headquarters-subsidiary contact and standardization-adaptation
balance variables as factors, and product success as the dependant
variable. The interaction term between standardization-adaptation
balance and headquarters-subsidiary contact was significant at p [less
than or equal to] 0.014 (F-statistic = 4.40). In addition, the main
effects of standardization-adaptation balance and
headquarters-subsidiary contact each remain non-significant, consistent
with our regression analyses (F-statistic = 0.024; p [less than or equal
to] 0.88 for level of contact and 0.243; p [less than or equal to] 0.79
for standardization-adaptation balance).

An examination of the means for the different groups revealed an
interesting pattern. Higher levels of performance were observed when
both standardization-adaptation balance and the level of
headquarters-subsidiary contact were high (mean market share = 27.22).
Mean market share with low standardization-adaptation balance--high
headquarters subsidiary contact, and high standardization-adaptation
balance--low headquarters subsidiary contact were 20.31 and 20.54,
respectively. However, we also found high levels of performance when
both standardization-adaptation balance and the level of
headquarters-subsidiary contact were low (mean market share = 28.02),
implications of which we discuss in the next section.

Discussion

Our findings provide new insights on how MNCs effectively balance
standardization with adaptation in their international product designs.
We find that a balance between standardization and adaptation shaped
through direct contact between headquarters and subsidiary managers
positively influences product performance in international markets. We
also find this positive influence to be strengthened by
headquarters-subsidiary cooperation. These findings draw attention to
the critical importance of assimilating headquarters-subsidiary inputs
for effectively balancing standardization-adaptation in international
product designs.

Our evidence reveals that the physical manifestation of a balance
between standardization and adaptation in the product design alone does
not lead to product performance. We believe this is because such a
balance, achieved without a proper exchange of headquarters-subsidiary
inputs, does not truly embody the distinctive expertise that the
headquarters and subsidiary managers possess. Thus we find that
international products, that do not assimilate and embody the combined
inputs of both headquarters and subsidiaries, do not perform as well as
products doing so--even if they have features that reflect both
standardization and adaptation. The assimilation of the combined inputs
of both headquarters and subsidiaries into the product's
standardization--adaptation balance, critically determines product
performance in a subsidiary market.

We also find evidence that headquarters-subsidiary cooperation
further facilitates the assimilation of cross-border inputs, as it
enables people to openly share their knowledge and accept different
viewpoints (Bartmess/Cerny 1993, Nonaka/Takeuchi 1995). Prior research
has conjectured such an influence. For example, Hoopes and Postrel
(1999) have speculated that cooperation among product development team
members enhances shared and integrative knowledge and thereby could
reduce the number of glitches in the product designs. Similarly,
Bartlett and Ghoshal (1989) provide anecdotal evidence implying the
significance of cooperation among Procter and Gamble's European
headquarters and subsidiaries in successfully developing a new laundry
detergent that balanced standardization with adaptation. Our findings
validate these suppositions--of cooperation influencing the effective
assimilation of cross-border inputs--more systematically over a broad
sample.

Our re-analyses using ANOVA while supporting our regression results
gave us some new and additional insights. While we find a high
standardization-adaptation balance and high headquarters-subsidiary
contact jointly influence product success (reinforcing our regression
results), we also find that a low standardization-adaptation balance and
low headquarters-subsidiary contact is associated with product success.
These results imply a "fit" logic consistent with information
processing theory (Galbraith 1973)--which suggests that high uncertainty
tasks (such as achieving a high balance in standardization-adaptation)
need rich information processing mechanisms (such as high
headquarters-subsidiary contact) whereas low uncertainty tasks (such as
implementing a low standardization-adaptation balance) only requires
lean information processing mechanisms (and hence low contact).
Performance is high as long as there is a match between uncertainty and
information processing capacity (Tushman/Nadler 1978)--a mismatch is
associated with lower performance. The implication of these results is
that balancing standardization-adaptation is a strategic choice for
MNCs, and if they choose not to launch products with a
standardization-adaptation balance they may be better off by minimizing
headquarters-subsidiary contact for that product's marketing.
However, to achieve an effective standardization-adaptation balance (the
focus of our inquiry), MNCs need both a high balance in
standardization-adaptation and high headquarters-subsidiary contact, a
core finding of our study.

As with most empirical research, these findings should be taken in
the context of the limitations of the study. One limitation of this
study is the use of a single informant. However, as the study focused on
very specific activities at the level of the product (unlike broader
issues like organizational culture where there could be considerable
heterogeneity among different sub-units), and collected information from
a knowledgeable subsidiary manager, the general weakness associated with
a single informant is mitigated (Venkatraman/Grant 1986). A second
related problem could be a common method bias. Nonetheless, considering
that the hypotheses were based upon joint and moderating effects rather
than main effects, it is unlikely that the common method bias would have
influenced the results. In other words, it is unlikely that managers had
a "joint effect or moderation-based theory" in their minds
that could be systematically biasing their responses and these results
(Subramaniam/Venkatraman 2001).

Another limitation is that we used only one measure of performance.
However, we used procedures similar to those employed by Moorman and
Miner (1997), in that respondents were asked to rate the extent to which
a particular product achieved a number of outcomes related to
profitability, sales and market share over the most recent annual
period. This additional measure of performance collected was found to be
correlated significantly with our measure of market share (Pearson
correlation = 0.38; p [less than or equal to] 0.01). While additional
objective firm performance measures and/or external secondary data would
have been desirable, brand performance in foreign markets is not
reported widely, and, hence extensive secondary data are not available.
We also recognize that with a large sample design testing a large
cross-section of international products across several countries, it is
difficult to get precise measures of the "quality" of
standardization-adaptation balances and the nature of inputs being
shared, that could have got by using small sample case studies. We
believe however that our test is conservative and despite measures
designed to get information across large cross-sections our results are
robust and revealing.

Contributions and Future Research Directions

By factoring in the extent to which headquarters-subsidiary inputs
are assimilated in the process of balancing standardization and
adaptation, this is the first study to empirically demonstrate how
balancing standardization/adaptation provides MNCs competitive edge in
terms of product performance in international markets. Prior research
has mostly focused on identifying contingencies, such as, the nature of
overseas markets, industry characteristics, or, the technology of the
product, to explain the likelihood of international products being
either standardized or adapted. A few exceptions (e.g., Samiee/Roth
1992) that investigated the performance implications of standardizing
international products, failed to find positive results.

Our findings, which are the first positive results to be reported,
emphasize the benefits of discerning how MNCs effectively balance
adaptation and standardization of international products, rather than
validating the feasibility or desirability of total standardization or
adaptation. The findings imply that the primary benefit of balancing
standardization-adaptation stems from the platform it offers for
headquarters and subsidiaries to integrate and harness their unique and
differentiated knowledge. It is also important to note that this benefit
applies to MNCs competing in a wide range of industries and product
categories, and balancing standardization and adaptation can be a valid
strategic choice across industries. The study thus implores for a
re-direction of research: from that of substantiating the prevalence of
standardization or adaptation, or establishing a fit between
standardization/adaptation and industry/product categories, to one that
investigates how companies effectively assimilate
headquarters-subsidiary inputs in their international products. Such a
re-direction also presents new research avenues. For example, our study
viewed standardization-adaptation from a subsidiary's
perspective--and, focused on international products introduced in single
subsidiary markets. Future studies could take a headquarters
perspective, and examine the influence of assimilating inputs from and
across multiple overseas sources when simultaneously introducing
products in multiple country markets (Yip 1995).

Our study also has some managerial implications. It suggests that
managers can effectively balance standardization and adaptation in their
products irrespective of the industry they are in provided they
facilitate the sharing of inputs from both headquarters and
subsidiaries. Having regular cross-border visits and
headquarters-subsidiary cooperation in the product development process
is important and efforts should be directed to encourage such practices
when balancing standardization and adaptation for international markets.
Our analyses also suggest that balancing standardization and adaptation
is a strategic choice for MNCs, and not all international products
require balancing standardization and adaptation. In such cases
cross-border visits and expensive measures to enhance cooperation could
be wasteful allocation of resources and not beneficial for those
products.

In conclusion, our study demonstrates the significance of
assimilating headquarters-subsidiary inputs to effectively balance the
standardization and adaptation of international products. In doing so it
offers new insights and research avenues for examining how MNCs could
enhance product performance in international markets.

Appendix 1. Measurement Items

1. Product performance

For the most recent annual fiscal period, please estimate the
market share accounted for by the brand/product indicated on page 1. To
standardize responses, consider market share as sales of a brand/product
as a percentage of the total sales in the market in which the
brand/product competes, in dollar amounts.

2. Direct contact between HQ and subsidiary managers

On average, how many days per year do marketing managers at your
subsidiary spend at corporate headquarters?

3. Headquarters-Subsidiary Cooperation

(Cronbach 's [varies] = 0.82)

With regard to your subsidiary's brand or product management
activities, please rate the extent to which you agree with the following
statements using a 7-point scale where 1 = strongly disagree and 7 =
strongly agree.

a. There is open communication between the marketing operations at
headquarters and your subsidiary.

b. The marketing operations at headquarters and your subsidiary
have similar goals.

c. Overall, your subsidiary's marketing operation is satisfied
with its interaction with the marketing operation at headquarters.

d. There is a give-and-take relationship between the marketing
operations at headquarters and your subsidiary.

(2) Indeed, the degree of standardization-adaptation balance
achieved in an international product design is fundamental to examining
the effectiveness of balancing standardization-adaptation, as such a
balance is an intrinsic and obvious objective. Largely standardized
products with no adaptation, or purely adaptive products totally unique
to a single country market with no elements of standardization, are
apparent reflections that the process is not achieving its fundamental
objective.

(3) Many studies have provided examples of such adversarial roles
and perspectives among headquarters and subsidiary managers stemming
from differing organizational objectives and goals (e.g.,
Bartlett/Ghoshal 1989, Levitt, 1983, Prahalad/Doz 1987). This does not
rule out exceptions of some MNCs having "enlightened"
headquarters staff mindful of adaptation, or expatriate subsidiary
managers reflective of the need for standardization. We discuss this
point to highlight that the standardization-adaptation process is
typically contentious, thus making headquarters-subsidiary co-operation
important for sharing cross-border inputs and creatively resolving the
standardization-adaptation conundrum.

(4) Note that, because the range of this variable was large, we
took the natural log of the responses before including the variable in
our analyses.

(5) Cronbach Alpha for this measure was 0.67.

(6) Our approach to use sub-group analysis is based on the view
that headquarters-subsidiary cooperation, being a contextual variable
facilitating the sharing of cross-border inputs, is a moderator that
influences the "strength" of the relationship being tested
(Venkatraman 1989). Such moderation effects should be ideally tested
using sub-group analysis (Arnold 1982, Prescott 1986).

(7) We repeated this procedure using a 1/3 split and a median split
and found results consistent with those reported here.

Cantwell, J., The Theory of Technological Competence and its
Application to International Production, in McFeteridge, D. G. (ed.),
Foreign Investment, Technology and Economic Growth, University of
Calgary Press, 1992, pp. 33-37.